The Art and Science of Platform Business Models
Part 4 of 4 in our month long series on Network Effects
The terms Marketplace and Platform are often used interchangeably in the context of business models involving a middleman.
While they share many similarities, including the presence of take rates and network effects, they sit on unique points along the middleman spectrum.
It’s always dangerous when you attempt to define something that comes in many flavors, but hold my beer:
Marketplace Business: Middlemen who actively facilitate liquidity on two sides, aid in demand generation, and handle payment.
Platform Business: Middlemen who offer tools for creation, aid in discovery, and provide a centralized location for supply to live.
What we’ll cover today includes a breakdown of how platforms make money, and how they fundamentally differ from marketplace models.
Here’s what we’ll tackle:
Subscriptions vs throughput
Advertising and eyeballs
Tooling and infrastructure
Retention vs acquisition
Payment
This one is for the true business model dorks, so tie your shoelaces tightly and don’t chew gum.
A focus on subscriptions vs throughput
Platform businesses commonly derive revenue through a take rate applied to an overarching subscription model, compared to marketplaces who usually apply a take rate to a transaction based model.
For example, Patreon, a platform, receives 5% of the creator’s monthly subscription payment. Comparatively, Fishingbooker, a marketplace, receives 15% to 30% on each fishing trip that gets booked.
Platforms often benefit from the recurring nature of transactions. Marketplaces may be re-occuring (transactions happen more than once), but not necessarily at the same amount or time.
Another example, Substack, a platform, receives 10% of the creator’s monthly subscription. StubHub, a marketplace for tickets, receives 20% to 30% on each ticket sold.
In this sense, platforms increase their revenue by increasing active subscriptions, while marketplaces increase their revenue by increasing throughput.
A focus on advertising and eyeballs
